Registration of beneficial owners: who exercises control?
Effective 1 October of this year, the Act on the Registration of Beneficial Owners has undergone fundamental changes. The legislators complied with the requirements of the European Commission and eliminated the deficiencies concerning the definition of beneficial owner under the 5th AML Directive. The new definition extends the range of persons to be registered as beneficial owners.
Since 1 October 2022, the beneficial owner is a natural person who:
- a) has a stake in a corporation or a share of voting rights of more than 25%
- b) has the right to a share in profits, other own resources (equity), or a liquidation balance of more than 25%
- c) exercises a decisive influence in a corporation or in corporations that individually or jointly have a stake of more than 25% in that corporation
- d) exercises a decisive influence by other means.
The relatively inconspicuous wording of letters c) and d) extend the range of persons who will newly need to be registered as beneficial owners. Decisive influence (control) in a corporation is exercised by the one who, at their own discretion, can directly or indirectly achieve that the decision-making of a corporation’s supreme body corresponds to their will. It is therefore the ability to significantly influence the decision-making of the entity’s supreme body (usually the general meeting), and not only in the positive sense, i.e., the ability to ensure that certain decisions are adopted, but also in the negative sense, i.e., having a veto right.
In certain situations laid down by the law, for example in the case of a controlling person under the Business Corporations Act or in the case of persons who may appoint or dismiss the majority of members of the statutory body of a corporation, decisive influence (control) is presumed. However, it can also arise for other reasons, even just contractual ones: for instance, the company’s creditor who has contractually reserved the right to veto certain decisions of the company's supreme body may become its beneficial owner.
What about ‘acting in concert’?
Decisive influence can also be exercised through acting in concert. This means actions by two or more persons using their voting rights to jointly influence, control, or manage a business corporation.
Concerted action is also presumed in some cases, such as close persons or persons who have concluded an agreement on the exercise of voting rights, but it can arise in virtually any way. If acting in concert is considered, even very small stakes may become relevant from the perspective of the registration of beneficial owner if their holders act in concert with a majority shareholder, member, or partner.
Imagine a company with four members/partners: a father with a 1% stake, and three sons, each with a 33% stake. Although the father's share is minimal and in itself has a negligible influence on the company’s decisions, it must be considered that the sons respect his views when making decisions about the company and will do nothing against his will. All members/partners thus act in concert. This then leads to the situation where all four members/partners are regarded as beneficial owners. Acting in concert shall also be recorded in the register of beneficial owners.
A rebuttable presumption applies to acting in concert, i.e., if persons who are presumed to act in concert, such as members/partners who are also family members, do in fact not act in concert, this must be proved. It is obvious that the new concept of beneficial owners may in some cases significantly broaden the range of persons who need to be registered as beneficial owners. The Act on the Registration of Beneficial Owners stipulates that the registering persons are obliged to ensure that the data in the register of beneficial owners comply with the new requirements, within six months of the effective date of the amendment to the act. Within this period, they are exempt from any related court fees.